HomeMy WebLinkAbout1992-02-24 Finance Committee MinutesR E C C I II E D
M~ nuts: t~,f,. the Joint Board of Selectmen/RMLD/FinCom Meeting I I, 1I+~'' February 24, 1992
{ Thy meeti ~1*a convened at 7:35 p.m. in the Cafetorium at Killam
S'd Sol. The respective bodies were called to order by their
chairmen. Present were the following: RMLD - Chairman James
O'Leary, David Swyter, Allan Ames, Bill Hughes, General Manager
Len Rucker, Division Managers Vin Cameron, Richard Murch, Paul
Carson, Counsel Ken Barna; Board of Selectmen - Chairman Eugene
Nigro, Vice Chairman Dan Ensminger, Selectmen George Hines and
Russ Graham, Town Manager Peter I. -Hechenbleikner; FinCom -
Chairman Bill Burditt, Vice Chairman Fred Van Magness, FinCom
Members Nate White, Pete Dahl, Richard Coco, Carroll McMillan,
Gerry MacDonald. Also present were the following list of inter-
ested parties: Ron Wood, Linda Bernat, Steve Thomases, Maria
Silvaggi, Anthony Rickley, William-Brown, Jim Keigley, Gloria
Hulse, Harold Hulse, Stuart LeClaire, and Adele Blunt.
Chairman Jim O'Leary of the RMLD welcomed the members of the
Board of Selectmen and the Finance Committee, and outlined the
proposed procedures.for the evening.
Chairman Eugene Nigro thanked the RMLD for meeting with us. He
expressed the need to explore all possible sources of additional
revenue since the Town is exhausted its financial reserves. At a
previous joint meeting of the FinCom and the RMLD, the issue of
increasing the payment from the RMLD to the Town for the earnings
distribution came up. This would required bonding authority for
the RMLD. The Board hopes to explore that alternative in the
spirit of cooperation.
Bill Burditt, Chairman of the FinCom, also expressed appreciation
to the RMLD for meeting and hoped that we would be able to gener-
ate additional revenue for the Town as a result of this meeting..
Len Rucker made a presentation to the assembled group, assisted
by overhead viewgraphs. He indicated that the Reading voters
elect the Light Board, and that Reading Town Meeting approval is
needed for most types of bonding. The Town Treasurer and Town
Accountant assist the RMLD with bill paying and payroll, the cost
of which are reimbursed by the RMLD. The State Department of
Public Utilities has oversight over all aspects of the operation,
and a four-town citizen advisory board has also been established,
Mr. Rucker reviewed the history of earnings distribution from the
RMLD to the Town. The level has been stable since FY86, except
that in FY91, there was an additional payment in lieu of taxes,
pursuant to the twenty-year agreement. The amounts have fluc-
tuated from $600,000 in 1980 to the current high of $1.25 mil-
lion.
Capital expenses for the Light Department are around $2.1 million
per year plus extraordinary capital costs. Sources of funding
include. the annual gross plant depreciation which yields ap-
proximately $1.125 million, uncommitted depreciation cash fund
which in FY91 yielded $0.375 million, but which will be ex-
hausted, and the remainder comes from the eight percent rate of
return. The $1.25 million to the Town of Reading also comes from
Selectmen's Minutes - 2/24/92 - Page 2
that rate of return. Rucker went on to explain that the change
in 1988 from using the gross plant value to the net plant value
in determining the eight percent has had a drastic impact on the
RMLD's ability to make additional payments. .One additional
source of revenue for capital projects is bonding. This has the
advantage of increasing plant value, which will increase the
eight percent yield. Even without granting the Town of Reading
additional earnings distribution, the RMLD will need to bond in
order to meet $2.1 million in capital needs per year, or will be
required to reduce capital expenses or cut the earnings distribu-
tion. The RMLD could also increase its depreciation, but that
would have the effect of reducing the net plant value. Rucker
also pointed out that interest on the operating fund goes to the
Town of Reading. In 1991, that was approximately $215,000.
Rucker outlined a projection of RMLD capital needs, reflecting
the need over the next five years for approximately $4.7 million
needed over and above the three percent depreciation, which could
come from either bonding or the unused eight percent return. As a
result of bonding, rates would have to go up approximately 1.25%
per year. However, only a portion of this would be attributed to
additional earnings distribution to the Town of Reading.
Mr. Rucker indicated that the $2.1 million is for ordinary capi-
tal needs only. Extraordinary projects such as the new building,
and the potential for a transmission project would need specific
additional bonding authority.
Chairman O'Leary proposed in calendar year 1992 an increase in
the payments for the earnings distribution to $1.4 million, up
from $1.25 million. This would affect the payment in June and
December, 1992. He also proposed that that would be set at that
level for calendar year 1993. The proposal is contingent upon
bonding authority of up to $5 million to be drawn down by the
RMLD. The payments to Reading from the twenty-year contract
would continue in the same formula, but would reach approximately
$75,000. The RMLD was asked why the entire $1.615 million dol-
lars available from the eight percent could not be given to the
Town. Concerns expressed by the RMLD were:
1. Cash flow problems.
2. The $1.615 million is not a real figure because it reflects
borrowing $5 million from the rate stabilization fund.
3. Other towns and ratepayers might object and file suit.
There was considerable discussion as to whether or not the RMLD
should take bolder steps in terms of this earnings distribution,
what a private utility's rate of return is, what the Town's debt
to equity ratio is, compared to the private sector, etc. Bill
Burditt asked if the Board would reconsider their $1.4 million
proposal at this time. Chairman O'Leary polled the RMLD Board
members present, and they decided not to reconsider at this time.
Selectmen's Minutes - 2/24/92 - Page 3
on motion by Van Magness, seconded by MacDonald, the FinCom voted
to ask the Board of Selectmen to appoint a select committee to
further review the long-term viability of the Town continuing to
own the Reading Municipal Light Department. The motion was ap-
proved by a vote of 5-2-0, with Burditt and White opposed.
The RMLD and the FinCom adjourned their meetings. The Board of
Selectmen discussed the issue of placing an override on the bal-
lot since this is the last day that could be done. There was a
motion by Graham, seconded by Hines, that the Board not place an
override on the ballot. The motion was approved by a vote of
4-0-0. Carroll McMillan indicated that he agreed with this ac-
tion.
The Board of Selectmen decided to meet Tuesday, February 25, and
Thursday, February 27. The meeting on the 27th will review Com-
munity Development and Human Services budgets. on motion by
Hines, seconded by Ensminger, the Board adjourned at 10:45 p.m.
:ecre es ctfully submitted,
ry